Buying a Home

Step 1 – Deciding to escape the rental trap and become a homeowner

The benefits of owning your own home

Buying a home has big benefits for your finances, for your children and for your health. Yes – that’s right! Owning a home is not only good for your wallet, it will also benefit your children and make you physically and mentally more healthy. To find out just how big these benefits can be, read our research on “How to Escape the Rental Trap” or use our Rental Trap Calculator to find out how much you will spend on rent over the time it will take you to purchase a home.

Once you decide to get a home of your own you will want to understand the costs of homeownership and how you will pay for these.

Understanding the costs of buying a home

There are broadly two types of costs that you will incur as a home buyer…

The costs that need to be paid upfront to purchase a home and the ongoing monthly costs of being a homeowner.

Upfront costs Ways to fund these costs
  • Home Loan
  • Savings
  • Personal Loan (for Transfer Costs)

and…

Ongoing monthly costs Paid out of:
  • Gross Household Income
  • Less: Salary Deductions
  • Less: Repayments on Contractual Debt
  • Less: Household Expenses
  • = Net Household Income
Upfront costs
Ways to fund these costs
  • Home Loan
  • Savings Personal
  • Loan (Transfer Costs)

and…

 

Ongoing monthly costs
Paid out of:
  • Gross Household Income
  • Less: Salary Deductions
  • Less: Repayments on Contractual Debt
  • Less: Household Expenses
  • = Net Household Income

Purchase Price of the Property

This is the biggest upfront cost and is largely determined by the following three factors that have the most influence on pricing:

  • Location, location, location – Areas are more attractive to buyers if they have good amenities, good schools, low crime rates or special aspects such as elevated views. These cause demand for these areas to be high and has an upward impact on prices. Areas with lower appeal will generally have lower prices.
  • Size of the stand/erf – This is measured in metres squared. Larger stands are generally more expensive. This is a very specific driver of price in larger metropoles.
  • Size and condition of the buildings – Homes that are larger; have more bedrooms, bathrooms and reception rooms; have modern designs and finishes; and are in good condition are the most expensive.

What do you actually pay? And what is included in the price?

In the case of a new development, the purchase price is the total price that the purchaser pays the developer for the development/building package.

Developers are generally VAT vendors and so the purchase price will include VAT. This means that no Transfer Duty will be payable.

Many times developers also include the legal costs of transferring the property and registering a bond over the property in the purchase price. This is not always the case and sometimes ancillary costs such as connection fees for municipal services may not be included in the purchase price – always make sure you understand what is included and what is not included.

You can view examples of developments where the developer pays the transfer costs on our new developments map.

For existing properties (where there has been a previous owner other than the developer) the total amount payable for the property, as negotiated between the purchaser and the seller and recorded in an offer to purchase, is the purchase price. This amount does not generally include VAT and so Transfer Duty will be payable.

In addition, this amount does not include any legal costs for transferring the property or registering a bond over the property. The legal costs of transferring and registering a bond need to be paid by the purchaser over and above the purchase price.

The purchase price is normally paid by means of a home loan (and a deposit from the buyers savings where applicable).

If you buy a property it will be transferred into your name and you will be recorded as the owner of the property in the Deeds Registry – a public register that shows the ownership of all fixed property in South Africa.

However until you repay the home loan to the bank, the bank will have the right to sell the property if you do not keep up with your loan installments. The fact that the bank has a mortgage bond as security over the property is also recorded in the Deeds Registry.

Conveyancers (attorneys) manage the process of transferring property from one person to another and registering a bond over the property in favour of the bank in the Deeds Registry.

The fees associated with these processes are conveyancers’ fees, paid for the attorneys’ role in changing the ownership of immovable property from the seller to the buyer in accordance with the deed of sale and registering a bond over the property. Often two sets of attorneys are involved: the transferring attorneys who deal with the transfer of ownership and the bond registration attorneys who act for the bank to register the bond over the property.

If you buy in a new development these fees are often paid for by the developer and included in the purchase price.

When buying an existing property the purchaser needs to be able to pay for these fees upfront and so generally existing property is only accessible to clients who have saved up to pay these costs.

It is possible that these costs can be covered by a personal loan where the buyer has additional borrowing capacity over and above the home loan. On rare occasions banks may include these amounts in the value of the home loan.

Legal transfer and bond registration costs are generally determined by the South African Law Society and published in a schedule of Conveyancing Fee Guidelines (although these are not fixed rates and are negotiable in certain instances).

You can use our transfer costs calculator to get an estimate of these fees.

Transfer Duty

Transfer duty is a government tax charged to the purchaser whenever fixed property is bought. This tax is payable to the South African Revenue Service (SARS) via the transferring attorney before transfer of the property can happen. SARS publishes a table of transfer duty rates on an annual basis.

When you buy from a developer you will not pay transfer duty: instead the price that the developer charges already includes VAT and so transfer duty is not payable.

You can use our transfer costs calculator to get an estimate of transfer duties payable.

Bond Initiation Fees

This is a fee charged by banks to provide you with a home loan. This is limited to R 6 038 (incl. VAT) in terms of the National Credit Act, 2007.

In general this needs to be paid upfront although some banks waive this fee or include it in the home loan on occasion.

You can use our transfer costs calculator to get an estimate of total upfront costs including bond initiation fees by clicking here.

In addition to the up-front costs above there are a number of ongoing costs of home ownership. The most important ongoing costs are: the installment on your home loan including interest, insurance premiums, rates and taxes, levies and costs of maintaining the property.

Loan installments (including principal and interest)

The largest monthly cost of owning a home is the installment you pay each month to repay your home loan. The installment includes the repayment of some principal debt and interest – interest being the price that the bank charges you for lending money. The interest on most home loans is linked to the Prime Rate. This rate is generally been 3% to 4% above the REPO Rate – the rate at which the Reserve Bank lends money to banks – Prime Rate Data.

What interest rate will I be charged?

Most bond calculators will use the Prime Rate to calculate your affordability but very few home buyers are actually offered a home loan at the Prime Rate.

The interest rate you will be charged will depend on the bank’s assessment of risk on your transaction. This will take into account a number of factors including your credit profile, whether you have paid a deposit on the loan and general credit market conditions.

When calculating your level of affordability, we suggest that you add a margin of 1.5% above the Prime Rate. Obviously you will still aim to get the lowest rate you can when you apply for a loan but this approach is conservative and also provides a small buffer if interest rates do increase.

It is critical to get the lowest interest rate you can!

A small difference in interest rates can make a very big difference in the overall cost of buying a home.

As an example: on a R 1 000 000 home loan, at an interest rate of 11.75%, you will pay R 1 600 897 in interest if you pay the required monthly installment over 20 years.

On the other hand, if you get an interest rate of 10.75%, you will pay only R 1 436 549 over the same time.

That is a saving of more than R 164 000!

So make sure that you shop around at all the banks or, better still, get assistance from a homeownership consultant to help you get the best home loan deal.

Homeowners Insurance Cover

This provides financial protection in the event that your home is damaged or destroyed and you should always ensure that your home is covered by homeowner’s insurance – even if you have repaid the bank completely or have paid for your house with cash.

In the case of homeowners cover you can expect to pay 0.2% of the value of the home on an annual basis (0.017% on a monthly basis) for homeowners cover.

Credit Life or Life Insurance

When you buy a house, you will have a substantial asset and you will need to carefully consider what should happen to your home (and anyone living in your home) if you die.

One way to help ensure that your family will not have to leave the house is to take out credit life insurance so that the remaining loan is paid off if something should happen to you.

If you already have life cover you can also cede your existing policy to the bank if you choose to do so.

The cost of life cover is often more variable than the cost of homeowners cover but a reasonable estimate would be 0.45% of the value of the home loan on an annual basis (0.0375% on a monthly basis).

Rates and Taxes


As a homeowner,
you will be responsible for paying rates and taxes on your property in addition to the costs of using utilities such as water and electricity.

The local municipality will determine what rates and taxes need to be paid.

As an example of the monthly cost of rates and taxes, in Johannesburg the rates and taxes for a R 800 000 house is R 367 per month.

Levies

In sectional title developments you will be required to pay a levy as set and charged by the Body Corporate. This levy will be utilised to pay for upkeep of the “common property” areas such as gardens and exterior walls and any other shared services such as guards if the sectional title development has controlled access.

Levies can vary significantly depending on the development but you could calculate a reasonable estimate of these costs by taking 0.0016 of the value of the property subject to a minimum of R 800 or maximum of R 1 600 per month.

Home Maintenance

If you own a home you will need to spend some money to keep it in a good condition. This may include repairs and general upkeep such as repainting the house from time to time.

Home maintenance costs can range from 0.5% of the value of a new property to 3% of the value of an older “fixer-upper” house per year with a good estimate being 1% of the value of the property on an annual basis.

It is not normal practice to include maintenance costs in the initial determination of affordability as most houses are purchased in good condition and do not require immediate maintenance. However, if you are purchasing a “fixer-upper” you should make sure that you have budgeted for the costs that you expect to spend on the house to fix it up.

Step 2 – Initial affordability and credit profile assessment

At the end of this step, you should have a clearer picture of your readiness to proceed to buying a home.

To do this you need to consider the following key aspects of your finances:

Checking your qualifying loan affordability amount

To check your qualifying affordability amount you can use our online bond affordability calculator.

These calculators vary in their level of apparent sophistication but essentially they all aim to calculate the maximum loan amount that the bank will grant you by taking 30% of the indicated gross household income (income before salary deductions) and working out the maximum loan you can afford based on an installment equal to this amount.

If your maximum affordability is below R 450 000 (corresponding to a gross household income of less than R 15 000) then you may find that you have more limited opportunities to buy as only 5% of listed properties fall into this price range.

If your maximum affordability is greater than R 600 000 (gross household income greater than R 20 000) then, depending on your expectations of the size of house you want to buy and the specific areas you are looking in, there is a reasonably wide range of options available.

WARNING:

Although this is a quick and easy way to get a sense of what you can afford, unfortunately these calculators are wrong  65.7% of the time – hence the disclaimers on each of them (including our own affordability calculator).

This is because they generally rely only on simplified inputs – mostly your gross household income – and do not include some of criteria that banks take into account when you finally apply for a loan, such as: contractual debt limits and your detailed household budget.

Another major factor that these calculators ignore is whether you intend buying in a new development vs existing or freehold vs sectional title. These choices can make a massive difference in what you can afford.

To find out how to more accurately calculate your affordability you can read our guide on “How to Maximise the Value of the Home You Can Afford”.

Checking your credit profile

Before a bank will grant you a loan to purchase a home the bank will need to be convinced that you are very likely to pay back the loan.

To do this banks will look at how well you manage your finances and, in particular, they will want to see that you have a good history of paying back any loans that you have been granted in the past.

To determine this they will look at the information that credit bureaus compile about your payment performance to assess your credit profile.

If you are in debt review or have any outstanding judgements, defaults or arrears on your profile it is very unlikely that you will get a loan.

Also, if you do not have any credit history because you have not borrowed money in the past you are also unlikely to get a loan. In this case you will need to build up a credit profile.

Before you go house hunting you should assure yourself that you have a strong likelihood of getting a home loan once you find that ideal home. Otherwise you are only going to spend a lot of your precious time visiting properties only to be declined in the end. Rather use that time to get your credit profile “buyer ready”.

This starts with getting your recent credit report from the credit bureaus and checking your credit profile. (Even if you know you always pay on time, it is worth doing this to make sure there is no mistakes or fraud on your profile that you may need to correct before going house hunting).

When you look at your report, the credit bureaus may give a score but this is not the same score as the banks use – each bank has their own proprietary scorecard but the table below gives an indication of some of the positive and negatives that will affect your likelihood of getting a loan.

Positives Negatives
  • A history of paying all your accounts on time and in full
  • Low utilisation of revolving credit balances
  • Some use of credit to buy assets such as a car in the past 24 months
  • Any arrears amounts in the last 24 months
  • High utilisation on your revolving credit accounts such as credit cards, retail store cards
  • Defaults/Judgements
  • High number of enquiries
  • Use of micro lenders for credit
  • Large number of accounts
Positives
  • A history of paying all your accounts on time and in full
  • Low utilisation of revolving credit balances
  • Some use of credit to buy assets such as a car in the past 24 months
Negatives
  • Any arrears amounts in the last 24 months
  • High utilisation on your revolving credit accounts such as credit cards, retail store cards
  • Defaults/Judgements
  • High number of enquiries
  • Use of micro lenders for credit
  • Large number of accounts

You could benefit by getting an experienced homeownership consultant to help you assess your likelihood of getting a home loan by asking them to help analyse your current credit profile.

They may also be able to advise you on the actions you can take to improve your profile to get ready to purchase a home.

If you have had financial difficulties in the past it could take some time to get your credit profile ready to go house hunting. This could take as little as 3 months if you need to build a new credit profile and could take as long as 3 to 5 years if you have judgements, are in debt counselling or have previously been insolvent and need to repair your credit health.

Are you planning to buy with a co-applicant or are you married in community of property?

If you are married in community of property then you have to purchase the property together with your spouse and will also have to jointly apply for a home loan (even if one person does not work).

If you are single, married out of community of property because you entered into an antenuptial contract or are married traditionally then you do not have to apply together with anyone but you can choose to do so if it would make purchasing a property easier.

Some important factors to consider when applying jointly:

  • It can improve your affordability – you will be able to rely on the joint income of all the applicants.
  • You will be jointly AND severally responsible for repaying the loan – if any one of the co-applicants subsequently fails to pay their portion of the loan, the bank that provided the loan can claim the full amount from ANY of the borrowers. So be 100% sure that you buy with co-applicants that you can trust to fulfil their obligations. Buy with your spouse – after all you agreed to be together “till death you do part”; consider buying with close family but be careful of buying with friends, work colleagues or “investment partners”.
  • The bank will consider the credit profile of all applicants – when assessing your application for a loan the bank will look at the credit profile of each of the applicants. If any applicant’s credit profile is risky the bank is more likely to decline the loan. This can be a particular problem for people that are married in community of property if one of them has a poor credit profile.

What happens if I am married in community and my spouse does not work and does not have an active credit history? – You will still need to apply jointly (and banks will look at both of your credit histories) but banks will only take the main applicant’s credit profile into account if there are no negative credit events related to the non-working spouse.

Step 3 – Preparing to go house hunting

You will be financially ready for homeownership when your finances allow you to purchase a home that meets your needs.

Let’s unpack this…

When it comes to considering your finances in the context of purchasing a home, there are really two major considerations… the strength of your credit profile and your level of affordability.

These are under your control and this is the step where you can actively work to get your credit profile up to scratch and improve your level of affordability to the maximum through a combination of managing your expenses and, where necessary, saving towards a deposit or money to pay upfront transfer costs and duties if you plan to buy an existing property.

By doing this you will have the maximum level of choice when you go house hunting.

Knowing what you are looking for

Irrespective of how well managed your finances are, it is only likely that you will be ready to purchase when you can afford to purchase a property that you are happy to live in. This means that you can purchase a property that meets most, if not all, of the following criteria as they may apply to you for now:

  • The property is in an environment that you believe is reasonably safe for you (and your family)
  • It is within a reasonable distance from your workplace
  • It is close enough to people, facilities and amenities that are important to you – for example: family support, friends, schools, universities, shopping centers, entertainment and public transport if you do not drive
  • It has sufficient space to accommodate everyone who is expected to stay in the house in terms of bedrooms, bathrooms, reception areas and garden space
  • It meets your lifestyle requirements e.g. pool, braai areas or even a tennis court
  • It is aesthetically pleasing to you – you love it! After all you are going to spend a lot of time in your new home.

Even if you realise that buying is a much better prospect than renting you are unlikely to do so if you can only afford a 1 bed unit and yet you are married and have 3 children.

So a key aspect of getting that home of your own is determining how to maximise your affordability so that you can meet your needs.

Maximising your actual affordability

We spoke earlier about bond affordability calculators and how they use 30% of your gross household income before deductions to calculate how much loan you can qualify for. Well, our research shows that these affordability calculators are wrong 65.7% of the time.

You may be thinking that this is crazy…

It means that  thousands of people rely on incorrect information to decide what value house they should look for. And when they finally find that perfect home, fall in love with it, make an offer and apply for a loan they end up being… DECLINED or they need to pay a substantial deposit that they may not have to bridge the affordability gap between their offer and what the bank will lend them.

Worst of all… these providers do not give you the feedback you need about how to improve your affordability. So, many people give up on homeownership or they settle for buying a cheaper property that is not their ideal home.

So why are these calculators wrong so often?

One set of reasons are “technical” in nature… To be able to provide you with a quick answer to your affordability, these calculators use only one piece of information – your gross income and ignore many of the critical factors that really matter (and that the banks will take into account when you do finally apply for a home loan). The factors that are ignored by bond calculators are:

  • The type of property you want to buy as there are significant differences in the value you can afford if you buy a new property from a developer (where you do not have upfront transfer costs) and buying an existing home or whether you buy in a sectional title unit where there are monthly levies or not.
  • What you can actually afford to pay based on a proper budget of your income and expenditure including all the costs you will incur monthly once you own a property; and
  • Limitations that banks apply to your monthly payment on contractual debt.

How the type of property you buy affects your affordability…

Upfront and ongoing costs of ownership will be different for different property types.

In particular, the most significant financial differences are between the following options:

  • The upfront costs on a new development are lower than for an existing house; and
  • Purchasing in a sectional title scheme will result in monthly levies that may have a significant effect on affordability.

So, to understand how your choice of property will influence what you can afford we believe you should consider the following 4 options when working out affordability…

New Development – Freehold New Development – Sectional Title

This is often the lowest cost option as all costs are included in the price and so this often results in the highest level of affordability.

As costs are included this option may be accessible to potential buyers who do not have significant savings.

Although all the upfront costs are included in the price of the property the buyer will have additional levies each month and so this will result in lower levels of affordability.

Existing Property – Freehold Existing Property – Sectional Title

In this case the purchaser has to pay transfer costs and transfer duties on top of the price of the home. This results in lower levels of affordability.

In many instances it will be necessary for the buyer to have saved up to be able to pay the upfront costs.

This is often the most expensive option as the buyer needs to pay transfer costs and transfer duties and then also needs to pay levies on a monthly basis – both of which result in increased costs of homeownership.

New Development – Freehold

This is often the lowest cost option as all costs are included in the price and so this often results in the highest level of affordability.

As costs are included this option may be accessible to potential buyers who do not have significant savings.

New Development – Sectional Title

Although all the upfront costs are included in the price of the property the buyer will have additional levies each month and so this will result in lower levels of affordability.

 

Existing Property – Freehold

In this case the purchaser has to pay transfer costs and transfer duties on top of the price of the home. This results in lower levels of affordability.

In many instances it will be necessary for the buyer to have saved up to be able to pay the upfront costs.

Existing Property – Sectional Title
This is often the most expensive option as the buyer needs to pay transfer costs and transfer duties and then also needs to pay levies on a monthly basis – both of which result in increased costs of homeownership.


Finding out what is constraining your affordability

The maximum installment amount that you can pay toward your home loan will be the lower of:

  • The amount you have available in your budget after deducting your contractual debts (including any loans that you may have to take out to pay for upfront legal and transfer costs), discretionary household expenses and contingency allowance from your net household income; or
  • 50% of your gross household income less monthly contractual debts (including any loans that you may have to take out to pay for upfront legal and transfer costs); or
  • 30% of your gross household income.

In the case of 1 and 2 you will need to make some assumptions to determine these costs based on the type of property you intend purchasing (and the related upfront and ongoing costs) and whether you have savings for these upfront costs or will have to take our an additional loan to cover any transfer related costs and duties.

Taking action to improve your affordability

In the end your affordability will always be constrained by one of the three factors highlighted above – your budget/expenses, your contractual debt or your income.

The action you need to take to maximise your affordability depends on which of these are constraining your affordability.

  1. Constrained by your budget

If you are constrained by your budget you will have to reduce your expenses (including your contractual debt obligations). Take a careful look at both your contractual debts and your discretionary household expenses and try to reduce or eliminate any items that are keeping you away from your homeownership dream.

  1. Constrained by contractual debt

You need to reduce your monthly contractual debt payments.

There are really two ways to reduce your contractual debt obligations:

  • Debt Repayment: Focus on those debts that have high interest costs and also those that have a short remaining term. In particular – pay down credit card debt without closing your card accounts. Just reduce the balance which in turn will also reduce your minimum monthly payments. This has the added benefit of improving your credit profile. Banks look at high utilisation of revolving credit as an indication that you are under financial stress; and
  • Extend the term to reduce the monthly payments: If you have loans that you cannot readily settle consider trying to refinance these debts with longer term debt. As an example, if you have a personal loan of R 50 000 that you are currently paying off over 2 years the installment will be about R 2 400. If you extend the term of this loan to 4 years the monthly installment will reduce to about R 1 400.
As a guideline, for every R 1 000 by which you reduce your monthly expenses or contractual debt you will improve your affordability by about R 85 000.
  1. Constrained by bank’s maximum 30% installment to gross income criteria

The only way to improve your affordability in this case is to increase your level of gross household income. This is often easier said than done but some of the ways people approach this are:

  • Working towards getting a higher paying job or a promotion
  • Increasing your level of commision or overtime income
  • Applying for a housing allowance (if your company offers these)
  • Buying with a co-applicant

To download a comprehensive guide to “Maximising the value of the home you can afford” click here.

WARNING: Get financially prepared BEFORE you go house hunting

By making sure that your credit profile and affordability are more likely to meet the banks’ home loan criteria before going house hunting you can dramatically increase your chances of being successful when applying for a home loan.

Experience with our clients shows that when clients follow this process they get approved at the banks 89.4% of the time (compared to a mortgage industry average of 74.3%* overall when applying at all banks and an average of 44.5%* when applying only at one bank).

* FNB Mortgage Barometer – June 2017

 

Finding out which areas you can afford

We all know that the three most important considerations when buying a home are – Location, location and location… but can you afford it?

Once you know your actual affordability you will need to decide which areas you would like to buy in based on your needs and what you can afford, remembering that your choice of area largely determines the price of a property and the size of the property you will be able to buy.

More established areas close to central business districts, where there is a lot of demand, are very expensive. Or, you might find something in your price bracket but it might be too small for your family’s needs.

The analysis of the Gauteng property market below can help you refine your choices about the area you would like to stay in based on what you can afford.

You can also download our Gauteng Area Pricing Guide for existing properties here.

The Gauteng Residential Property Market

The Gauteng residential property market is the largest and most active in South Africa with in excess of 100 000 existing properties listed for sale in the province.

R 600k – R 1.5 million (Gross income: R 20 000 – R 50 000)

Properties in the range R 600 000 to R 1.5 million when taken together represent the largest segment of the market in Gauteng – 45.1% of all listings.

This is the market that is most attractive to first time homebuyers who are mostly active in the R 700 000 to R 1.5 million price range. This market is particularly active in Gauteng where approximately 28% of buyers are first time homebuyers.

This segment of the market offers a wide range of choice in terms of home options ranging from apartments in new developments to existing homes in well established suburbs.

 

Upmarket sectional title apartments/townhouses in secure estates
  • Modern, new developments
  • Open plan
  • 2-3 bedrooms, 1-2 bathrooms
  • Fully fitted
  • Sought after areas
  • Communal facilities such as swimming pools, clubhouses, gyms etc.
  • R 900 000 – R 1.5 million

 

Sectional title apartment/townhouses in older areas
  • Slightly older stock
  • 2-3 bedrooms, 1-2 bathrooms
  • Can be spacious due to older design
  • Fully fitted
  • Good areas
  • Limited communal facilities
  • R 700 000 – R 1 million

 

Smaller Apartments/Townhouses
  • New developments and existing stock
  • 1-2 bedrooms, 1 bathroom
  • Fully fitted
  • Entry level or investment – higher density
  • Good areas
  • Limited communal facilities
  • R 600 000 – R 800 000 depends strongly on area and size with new developments being smaller

 

Houses in suburban areas – R 900 000 – R 1.5 million
  • 2-4 bedrooms, 1-2 bathroom, generally with garages.
  • Smaller homes in good areas (outside of prime areas in the major metropolitan regions); or
  • Larger homes in more outlying areas
  • R 900 000 – R 1 500 000 depends strongly on area and size with newer developments or properties closer to urban centers being smaller

Areas include:

Alberton Central, Brackenhurst, Crystal Park, Northmead, Parkdene, Sunward Park, Kosmosdal, Eden Glen, Primrose, Jordaan Park, Bezuidenhout Valley, Kew, Westdene, Birchleigh, Pomona, Rhodesfield, Krugersdorp North, Olifantsfontein, Dunnottar, Kirkney, Northwold, Florida and Casseldale.

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

 

Houses in mid-market suburban areas – R 600 000 – R 900 000
  • 2+ bedrooms, 1+ bathroom
  • Smaller properties outside of prime areas in the major metropolitan regions
  • R 600 000 – R 900 000 depends strongly on area and size with new developments being smaller

Areas include:

Carletonville, Albertsdal, Crystal Park, Windmill Park, Olievenhoutbosch, Lenasia, Kagiso, Riversdale, Clayville, Lotus Gardens, Mamelodi, Homelake, Cosmo City, Witpoortjie, Protea Glen, Selection Park and Peacehaven.

For a more detailed list of areas with existing properties within this price download our Gauteng Area Pricing Guide.

 

 

Upmarket sectional title apartments/townhouses in secure estates

  • Modern, new developments
  • Open plan
  • 2-3 bedrooms, 1-2 bathrooms
  • Fully fitted
  • Sought after areas
  • Communal facilities such as swimming pools, clubhouses, gyms etc.
  • R 900 000 – R 1.5 million

 

Sectional title apartment/townhouses in older areas

  • Slightly older stock
  • 2-3 bedrooms, 1-2 bathrooms
  • Can be spacious due to older design
  • Fully fitted
  • Good areas
  • Limited communal facilities
  • R 700 000 – R 1 million

 

Sectional title apartment/townhouses in older areas

  • New developments and existing stock
  • 1-2 bedrooms, 1 bathroom
  • Fully fitted
  • Entry level or investment – higher density
  • Good areas
  • Limited communal facilities
  • R 600 000 – R 800 000 depends strongly on area and size with new developments being smaller

 

Houses in suburban areas – R 900 000 – R 1.5 million

  • 2-4 bedrooms, 1-2 bathroom, generally with garages.
  • Smaller homes in good areas (outside of prime areas in the major metropolitan regions); or
  • Larger homes in more outlying areas
  • R 900 000 – R 1 500 000 depends strongly on area and size with newer developments or properties closer to urban centers being smaller

Areas include:

Alberton Central, Brackenhurst, Crystal Park, Northmead, Parkdene, Sunward Park, Kosmosdal, Eden Glen, Primrose,  Jordaan Park, Bezuidenhout Valley, Kew, Westdene, Birchleigh, Pomona, Rhodesfield, Krugersdorp North, Olifantsfontein, Dunnottar, Kirkney, Northwold, Florida and Casseldale.

For a more detailed list of areas with existing properties within this price download our Gauteng Area Pricing Guide

 

Houses in mid-market suburban areas – R 600 000 – R 900 000

  • 2+ bedrooms, 1+ bathroom
  • Smaller properties outside of prime areas in the major metropolitan regions
  • R 600 000 – R 900 000 depends strongly on area and size with new developments being smaller

Areas include:

Carletonville, Albertsdal, Crystal Park, Windmill Park, Olievenhoutbosch, Lenasia, Kagiso, Riversdale, Clayville, Lotus Gardens, Mamelodi, Homelake, Cosmo City, Witpoortjie, Protea Glen, Selection Park and Peacehaven.

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

 

R 1.5 million to R 2.5 million (Gross income: R 50 000 – R 90 000)

This segment of the market is accessible if you have gross household income of between R 50 000 and R 90 000 per month or have significant savings to contribute to a deposit on the property.

Purchasing a property in this segment also involves paying significant transfer costs and transfer duties. For example, to purchase a property of R 2 million you should plan to have savings of about R 323 000. This is made up as follows:

  • R 60 000 for transfer duties.
  • R 63 000 to pay for bond initiation fees and legal transfer and bond registration costs.
  • R 200 000 to pay a 10% deposit in case you only get a 90% bond – you will not need this if you qualify for a 100% bond. You can learn how to give yourself the best chance of getting a 100% bond by downloading our guide on How to Maximise the Value of the Home You Can Afford”.

As a result of these additional financial implications, this is a market that is not always easily accessible to first time home buyers – either you need to first save up the required amount or often purchases in this market are subject to the sale of a property to raise the funds for these expenses.

Property in good areas in this segment of the market can be highly sought after.

 

Existing houses in upmarket areas – R 1.5 million – R 2.5 million
    • Large houses in well developed areas
    • 3+ bedrooms, 2+ bathrooms with multiple reception areas
    • Luxury fittings
    • Large gardens (often with swimming pools) in more outlying areas or fixed up properties in older areas in major metropoles

Upmarket areas include:

Akasia, Alberton, Melville, Fourways, Constantia Kloof, Randpark Ridge, Monument Park, Silverton, Waterkloof Ridge, Menlo Park, Wonderboom, Ferryvale, Halfway Gardens, Vorna Valley, Henley On Klip, Aston Manor, Bassonia, Parkhurst, Glenvista.

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

 

 

Existing houses in upmarket areas – R 1.5 million – R 2.5 million

  • Large houses in well developed areas
  • 3+ bedrooms, 2+ bathrooms with multiple reception areas
  • Luxury fittings
  • Large gardens (often with swimming pools) in more outlying areas or fixed up properties in older areas in major metropoles

Upmarket areas include:

Akasia, Alberton, Melville, Fourways, Constantia Kloof, Randpark Ridge, Monument Park, Silverton, Waterkloof Ridge, Menlo Park, Wonderboom, Ferryvale, Halfway Gardens, Vorna Valley, Henley On Klip, Aston Manor, Bassonia, Parkhurst, Glenvista.

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

R 2.5 million+ (Gross income: R 90 000+)

This is the price you can expect to pay to live in one of Gauteng’s prime suburbs. These can be newly developed secure living estates; or houses at the heart of the best locations in some of the oldest and most developed suburbs. Here you will find easy access to every amenity from Luxury Shopping Centres, to top class Gyms and some of the best private schools around.

And the houses themselves can be spectacular! (We’ll you would hope so at the price).

The top houses in this category can fetch prices in the tens of millions and some are even listed at R 100 million+.

 

Existing houses in prime locations – R 2.5 million+
  • Large houses in well developed areas (often renovated or modernised) or newer properties on exclusive secure estates.

  • 3+ bedrooms, 2+ bathrooms with multiple reception areas across multiple levels.

  • Luxury living.

  • Large gardens with lots of space

Prime locations include:

Ebotse Golf Estate, Lakefield, Copperleaf Estate, Beyers Park, Midstream, Dunvegan, Craighall Park, Forest Town, Houghton Estate, Linksfield, The Parks, Serengeti Lifestyle Estate, Savannah Hills Estate, Steyn City, Summerset, Waterfall, Silverwoods Country Estate, The Wilds, Kameeldrift East, Boskruin, Northcliff, Eagle Canyon Golf Estate, Bryanston, River Club, Morningside, Sandhurst.

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

 

 

Existing houses in upmarket areas – R 2.5 million+

  • Large houses in well developed areas (often renovated or modernised) or newer properties on exclusive secure estates.
  • 3+ bedrooms, 2+ bathrooms with multiple reception areas across multiple levels.
  • Luxury living.
  • Large gardens with lots of space

Prime locations include:

Ebotse Golf Estate, Lakefield, Copperleaf Estate, Beyers Park, Midstream, Dunvegan, Craighall Park, Forest Town, Houghton Estate, Linksfield, The Parks, Serengeti Lifestyle Estate, Savannah Hills Estate, Steyn City, Summerset, Waterfall, Silverwoods Country Estate, The Wilds, Kameeldrift East, Boskruin, Northcliff, Eagle Canyon Golf Estate, Bryanston, River Club, Morningside, Sandhurst.

For a more detailed list of areas with existing properties within this price download our Gauteng Area Pricing Guide.

R 400 000 – R 600 000 (Gross income: R 15 000 – R 20 000)

In terms of property listings, this market represents only about 11.6% of online listings.

To qualify to buy a property in this market you need income in the range R15 000 – R20 000. Often people in this income bracket do not have significant savings with which to pay upfront costs and so many buyers in this market purchase directly from developers who pay transfer and bond costs for the buyer.

Partly as a result of limitations on affordability to pay upfront costs, there is a more limited secondary market of existing property in this segment.

 

Existing property – R 400 000 – R 600 000
  • Smaller stands and house sizes between 40-60m2 2 bed, 1 bath

Areas:

Modderbee, Dawn Park, Ennerdale, Kagiso, Lotus Gardens, Mahube Valley, Mamelodi.


For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

 

 

Existing property – R 400 000 – R 600 000

  • Smaller stands and house sizes between 40-60m2 2 bed, 1 bath

Areas:

Modderbee, Dawn Park, Ennerdale, Kagiso, Lotus Gardens, Mahube Valley, Mamelodi

For a more detailed list of areas with existing properties within this price range download our Gauteng Area Pricing Guide.

Market below R 400 000 (Gross income: Less than R 15 000)

There is a very limited formal market for property below R400 000 in value making up only 3.6% of online listings.

Stock in this sector consists of inner city flats, RDPs sold in the secondary market and a limited number of properties in new developments specifically aimed at this market segment.

If you earn below R 15 000 you may qualify for a government Finance Linked Individual Subsidy Programme (‘FLISP’) subsidy. You can find out more at from the National Housing Finance Corporation.

Get a homeownership consultant to help you narrow down your area selection

As we noted earlier, you will only be ready to buy when your finances allow you to purchase a home that meets your needs.

So once you know how much you can afford and you have established your buying criteria, get an expert with access to the right data to help you narrow down the areas you search so that you can find areas where:

Needs Finance Area Your Home

It’s a common mistake for people to search in areas that they can’t afford so it is a good idea to spend some time thinking about “location, location, location” before you go house hunting.

To find out more about the areas that you could afford you can download our area affordability guide here or you can visit our map to see a range of new developments in Gauteng where the developer pays transfer costs for you making it possible to buy without savings.

Some final guidance on choosing the area you want to live in…

Here’s some sage advice on your investment – choose the best area you can afford where you can meet your buying criteria rather than buying the best house in a poorer area.

You should also consider the lifestyle an area has to offer you and your family. Whether you like to visit public parks with your children, shop, eat out, or prefer a busy nightlife, see that the area gives you access to your lifestyle choices.

Go visit the areas that you are thinking about and use the guidance below to make sure you consider all the main aspects:

Safety and Security

We all want to feel safe and secure in our homes and would like to buy in areas with the least crime. Unfortunately, however, reliable crime statistics per area are not readily available.

As a result we need to rely on other indicators to try and determine the level of safety in an area:

  • Does the area/suburb have an active residents association and policing forum?
  • Is there an active police presence in the area e.g. a police station?
  • Is there a security company employed to proactively manage safety in the community through patrols?
  • Are there any/many vacant buildings or indications that people are illegally squatting in the area?
  • What do people living in the area say about crime?

Neighbourhood appearance and general environment

The general condition and appearance of the neighbourhood you choose can have a big impact on the future value of your home:

  • Inspect the area to see if it is kept clean and neat – do people take pride in their homes and surroundings?
  • Do public services in the area operate effectively i.e. are roads and pavements in good condition, is refuse removed, are street pole ads and other illegal advertising kept to a minimum etc.
  • Is the neighbourhood polluted by nearby factories or industrial areas?
  • Is the area quiet at night and not full of bars and shebeens, which may be noisy or disruptive. (If you like a good party this may be considered an advantage). 

Property Values

The property market is one market where past performance is often a reasonably good indicator of future performance, so get information to determine if the area is improving or in decline:

  • Obtain information on what prices were paid for in recent sales in the area
  • Compare these to prices from a year ago, 3 years ago and 5 years ago.
  • Have prices been increasing, have they stagnated or declined? Remember to take inflation into account to see if prices have increased in real terms.

Nearby Amenities

People are attracted to some of the best suburbs because they are well established with good infrastructure and amenities:

  • Are there good hospitals nearby?
  • Are there good schools (both private and public) in the area?
  • Are there shops in the area?
  • Is there appropriate entertainment facilities e.g. parks, sports facilities, gyms or restaurants?

Transport and Proximity to Major Centres

Is the area well located relative to where you work and where your friends and family live?

  • Check the expected travel time to work using Google maps
  • Also use Google maps to see how far you are from schools, family and friends
  • If you have a car you might want to be close to highways. Alternatively, if you make use of public transport you may want to be within walking distance to stations, taxi ranks or bus stops.

You can get a lot of this information by getting an area/suburb report from Lightstone – you can access a Lightstone suburb report by clicking here and signing up

Once you have settled on an area it is time to find that ideal home.

To help you in your area and home selection you can download a comprehensive set of Home Buyers Checklists.

Step 4 – Finding that ideal home of your own

This is where the rubber hits the road! Literally! It is time to climb into your car and find that ideal home…

Once you have decided in which areas you are going to search, this is all about finding the right house at the right price!

Generally there are two scenarios when buying and each of them are quite different:

Note of caution… the purchase of your dream home can easily turn into a nightmare if you make the wrong choices so arm yourself with as much knowledge as possible and trust your intuition.

 

Major differences between new developments and existing property

The key differences to note are:

New developments

  • All the upfront costs such as bond registration and property transfer costs are usually included in the price.
  • Generally no transfer duty is payable as the price includes VAT.
  • Valuations on price and quality are pre-approved by the banks.
  • All new developments need to comply with the latest standards on energy efficiency and should be equipped with either a solar or gas geyser or a heat pump. This can save you thousands in monthly utility costs.
  • You may have to wait for your property to be constructed before moving in. This could take as long as 12 months.
  • You will need to ensure that the developer delivers quality homes.
  • Your new house will come with a warranty on the building, roof and geyser ranging from 90 days to 1 year and a 5 year structural warranty from the NHBRC.

Existing properties

  • As the buyer, you have to pay all legal transfer costs on top of the selling price which, for a house of R 600 000, would be  R 35 000 and would be R45 000 for a R900 000 property.
  • Additionally, if the value of the property is greater than R 900 000 there can be very substantial transfer duty taxes. For example, on R 2 000 000 the transfer duty is R 60 500.
  • You will have more choice as the stock of existing property is larger than the availability of new developments.
  • Every house is different and it is sometimes difficult to know if the price is right.
  • The bank has to do a valuation separately and sometimes the bank might not find the value asked by the seller. In this case you may have to pay a deposit if you still want the house.
  • Transfer should only take about 2 months.

Buying in a new development

When buying in a new development you may be buying a property that has already been built or will be built before the property is transferred to you or you may be buying a building package where the land will be transferred to you and the developer will then build you a home according to your specifications – this is often referred to as plot and plan as you are buying a stand and a set of building plans.

When  you buy a building package or buy off plan and your home still needs to be constructed there are special risks that you need to consider. This section highlights the most important risks to consider.

If you are buying an already constructed unit in a new development then some of the risks below may not be as relevant. In this case you should go through this section but also take into account the key aspects of buying an existing property below.

There are three main factors that you need to take into consideration when buying in a new development. These are:

  • The quality of the developer/builder;
  • The development you are buying into; and
  • The actual plans/design of the unit you are buying.

How to check that you are dealing with a reputable developer

One of the key risk factors when buying a building package or buying off-plan is that you buy from a reputable developer. You could suffer significant financial losses if the developer delivers poor quality product or, even worse, does not even deliver your home because they go out of business before they have completed the project. Property development is one of the most risky businesses and so this happens more often than you think. For example, Basil Read Limited that was the No. 1 Company in South Africa in 2008 and 2009 according to the Sunday Times Best Companies survey went into business rescue in 2018.

Here are some indicators that you should consider to help you determine if you are dealing with a reputable developer:

  • How long have they been in business? Businesses that have been in existence for longer or have an experienced management team are more likely to have the expertise to deliver high quality products.
  • Visit previous developments done by the company. This is a great way to see if the developer delivers a product that can stand the test of time. So, don’t only visit recent developments – ask to see a development that they did 3 or 5 years ago.
  • Ask other buyers about their experience. Take the opportunity while on site to ask existing buyers about their experience in dealing with the developer. How did the developer deal with complaints? Did they deliver on time? You can also get a sense of how seriously they take client service by checking out comments that other customers may have left on their facebook page or posts or you can visit hellopeter.com and search there to see how they deal with complaints.
  • What is the developer’s cancellation policy? Sometimes things just don’t go as planned and you may be forced to cancel your purchase. The best developers are concerned about their brand and are interested in protecting this in the long run. They will have policies that make it easier for you to cancel and come back when you are ready to purchase again.
  • What warranties does the developer provide? Find out the developers policy for dealing with defects in building quality and materials and the length of any warranties provided. As a minimum you should be covered for 5 years on any major structural defects through the NHBRC, 12 months against any roof leaks, 6 months on the geyser and 3 months for all other aspects of the building.

If you have any doubts about a developer – keep on searching… There are many reputable developers out there and buying a house is a huge investment – so it is worth your while finding a developer you can trust!

Doing your due diligence (checks) on the development

In addition to ensuring that you are buying from a reputable developer, you also need to do your due diligence on each development you are considering buying in.

The key questions you should ask are:

  • The status and timing of any outstanding council approval processes. Before developers can start construction on a development they need to go through a complex process of township establishment and/or town planning that includes: provision of municipal utilities such as electricity and water to the development; doing an environmental impact study and dealing with any concerns that this may cause; dealing with objections to the development and finally handing the township back to council once council is happy with the quality of any infrastructure that the developer has installed. This process can take very long – anything from 6 months to 5 or more years. So BE AWARE. Ask how long the process is still expected to take – then to be safe, add another 6 months and if you are still happy – OK! Else keep looking. Be particularly wary of paying a deposit to “secure” a unit if there are any township proclamation issues outstanding. You may be better served using the cash to purchase a home that can be delivered to you sooner.
  • Does the builder have an up to date National Home Builders Registration Council (NHBRC) enrollment certificate? Check if the developer is also doing the construction. Often developers will subcontract the construction of your home – so make sure the builder has the necessary NHBRC enrollment. This is not a guarantee of quality but it is a legal requirement and it does mean that the construction will have to meet certain minimum standards – you will be protected against major structural flaws in the construction for a period of 5 years.
  • Have valuations been approved by all the banks? If prices in the development have been approved by all the banks this confirms that you may be able to get a 100% home loan for the full value of your purchase. This means that you will not need a deposit if your affordability is sufficient to buy in the development. Asking this question also allows you to confirm that the developer is at least on the approved developer list of the various banks. Once again, this is not a guarantee of quality but you should probably be wary if the developer is not approved by any of the banks.
  • Does the development comply with SANS 10400 XA energy efficiency regulations? Since 2014 essentially all newly built homes must have a solar geyser or heat pump to provide hot water and must meet certain guidelines for insulation of the house to keep it cool in the summer and warm in winter. You may find that some developers continue to illegally build homes that ignore these regulations. The houses may be cheaper but you will pay for that upfront saving by paying substantially more for electricity in the future, not to speak of contributing to global warming.
  • Visit a showhouse. Visit a finished show house, which may or may not be furnished, where you will be able to get a feel for the quality of the developer’s product. It is a big advantage if a showhouse is furnished. This will give you a good indication that your furniture will fit properly and that you will be able to make maximum use of available space. If a showhouse is not furnished it may indicate that the builder is hiding bad design. Builders have been known to shrink the furniture on the house plan to make it look like it does fit.
  • Impression on site. Note the cleanliness and health and safety measurements put in place on site. Are the staff and vehicles easily identifiable? These give the impression that the company not only cares for its employees, but is more likely to care for its clients and deliver a quality product.

Once you have “ticked all the boxes” for the developer and the development, then here are the key considerations when choosing your stand and/or plan layout and specifications:

  • Selection of plan and finishes. You will be given the opportunity to choose a house plan. Ensure that the house is architecturally designed to your specified building style, paint and roof colours, finishes like floor tiles, built in kitchen cupboards and bedroom wardrobes. This is your chance to ensure that your house will suit your specific needs when it comes to number of bedrooms, layout and finishes.
  • Stand position and house placement on the stand. Understand where your house will be located in the development and view the exact plot of land, where your house will be built. Check that there are no obvious issues with the stand that may impede your use of the stand such as electrical distribution boxes, storm water drains, servitudes, street lamp posts blocking the driveway, overhead cables etc. Make sure that the placement of the house on the stand allows you to add on to the house and allows for easy access for cars. As far as possible also try and ensure that the house ‘faces’ north and that you have windows that face onto the approach to the house.
  • Specifications: Tiles, built-in cupboards, doors, windows, floors, appliances, taps etc. Make sure you are aware of what is included in the selling price and what choices you have in terms of colour and style. Make sure you have this outlined in writing from the developer and that any promises are recorded contractually.

Be aware of the following costs that a developer may charge and check if these are included in the price you pay (and that this is recorded in your agreement with the developer):

  • Property transfer legal costs
  • Bond registration legal costs
  • Project management fees
  • NHBRC enrolment fees
  • Municipal connections like water and electricity and plan approval fees
  • Engineer’s certificates for the foundation and roof
  • Architect’s fees

To help you evaluate a developer or development you can download a comprehensive set of Home Buyers Checklists.

When you buy off-plan in a new development you will generally sign the following documentation:

  • An offer to purchase agreement. This is the agreement in terms of which you will buy the stand on which your home will be built. If the developer has agreed to cover the costs of transferring the property to you, this should be recorded in this agreement. It is often a condition of this agreement that you also sign a building contract at the same time.
  • A building contract (including the building specifications). This is the agreement that appoints the builder to build your new home. You must ensure that everything that you expect to be part of the price is included in this agreement and in the specifications that will be attached to this agreement.

Unfortunately there are a lot of poorly drafted agreements out there that will put you at risk if you sign them. It is highly recommended that you get someone with experience in these types of contracts to review them before signing.

Buying an existing property

To find an existing home can be a more complex exercise as every house is different. You do not know who built it and if the owner has kept up maintenance and looked after the house and you do not know the seller or the agent. To add to all of this is the fact that the value has not been determined up-front as is the case with developments. The bank insists on a property valuation on every application and may not find the same value as what the seller is asking for.

Searching for your ideal home online

Listing sites such as Property24.com and Private Property have thousands of property listings – around 115 000 properties in Gauteng.

So these must be great places to find a property with all of that choice, right? Well, maybe?

Here are some statistics that got us thinking twice…

In Pretoria alone there are about 40 000 listings at any one time and monthly sales of only 1 150. That is only 2.9% of the total listings. A proverbial needle in a haystack!

Yes, that is the problem with so much choice – how do you go about finding that ideal home when there is soooo much to choose from?

The secret – have a plan!

Here are the key success factors when searching for property online:

  • Narrow down your area choices and affordability first. This will greatly reduce the complexity of your search! And be careful not to slowly drift into new areas or start to look for increasingly expensive property that you can’t afford.
  • Understand your needs. By using search criteria such as property type, number of rooms, number of bathrooms etc. you can zoom in on suitable properties much more quickly.
  • If it is listed it does not mean that it is actually available. Unfortunately some properties remain listed even though they may be under offer or may already be sold. This is because the ‘best listings’ are lead generators for agents who may then try and sell you something else (that may not be what you are looking for).
  • Get to know the reputable agents in the area you are interested in. This can be a lot of work but can yield some of the best results. Instead of relying solely on using online search, spend some time getting to know who the best agents in the area are and introduce yourself to them. Then let them know what you are looking for – the next sales mandate they get may just be that home you are looking for.

Who’s side is the estate agent on?

Estate Agents are agents of the seller and have the seller’s best interests at heart! (irrespective of how much they may try and tell to you that they are also acting to look after you interests).

This is because they have a mandate from the seller and are often highly incentivised to get the best result for the seller by selling the property and getting the highest price they can.

The Estate Agency industry has been in the process of working to improve its image for many years now. As part of this process all Estate Agents are now required to register with the Estate Agencies Affairs Board (EAAB) and meet certain minimum levels of professional training. You can confirm that the agent and agency you are dealing with is registered by doing a search on the EAAB’s website.


Some guidelines when you go to view properties
:

  • If you visit a property and don’t like the salesperson/estate agent or the property remember you are not obliged to leave your details with them. If you do they are likely to try and make a sale of the properties in their stock – and not necessarily the ideal home for you.
  • If you do like what you see, introduce yourself and let them know that you are a serious buyer looking at a small selection of properties and are in the process of shortlisting a few properties before buying.
  • Ask a few simple questions that will give you more information in case you need to negotiate a deal later. (These questions are in addition to any questions you may have about the physical state of the property):
    • Ask why the seller is selling? Watch for any indication of urgency in the sale.
    • Ask if there have been any offers and at what price?
    • Ask what the agent believes the seller may settle for?
  • DO NOT tell the estate agent or sales person what your maximum affordability amount is. Sales people are incentivised to get the highest price for the seller and so they will aim to maximise the price using this information.
  • DO NOT sign an Offer to Purchase without first getting an expert to review this for you. Some sales hotshots will try and create a false sense of urgency to entice you to sign as quickly as possible. It can be that there is real time pressure but even then make sure you get advice first. Remember – irrespective of how much they may try and tell to you otherwise, they have a duty to the seller and not to you.

What to physically look for when visiting an existing house

There are many points to consider when buying an existing house. The most important to look at are those that might end up costing you a lot of money later.

We have highlighted some of the major check points below and you can also download a comprehensive set of Home Buyers Checklists.

Structural cracks

Take your time and walk around the house, carefully looking to see if you can spot any structural cracks. Structural cracks can be identified if you can see light coming through the crack or if the crack is wider than 2 mm (a R5 coin turned on it’s side). This is one of the most serious defects in any house and you should rather walk away immediately if you have any concerns.


Visible roof and gutter damage

Look for loose or out-of-place tiles and sagging. This may indicate damage to the roof and a compromised structure. Gutters should be straight and without visible gaps. Also look for rust on the gutters. If there is significant rust damage to the gutters this can cost a lot to repair or replace.

 

Roof leaks and water damage

Sagging ceilings or discolouration are clear signs that the roof is leaking.

Roof insulation and energy efficient heating

Older houses usually do not feature these energy-saving technologies. Be prepared to pay more for electricity or get a quote for the addition of a solar geyser or heat pump.

Damp and mould

This can be spotted by looking for signs of peeling paint and green or brown discolouration of the walls. You will also be able to smell the presence of damp, or feel moisture by running your hand over the affected area. Leaking plumbing pipes, roofs and inferior waterproofing are the main contributors to damp. All of these can be very costly to repair, so beware.

Paint color

Are you happy with the colour and quality of the house’s paint? If not, repainting could be very expensive.

Important – if the house is newly painted, it might mask bigger problems like cracks or mould. Take extra care to check for signs of cracks or mould if the house has recently been painted.

Plumbing

Make sure you open more than one tap, cold and hot, to test the water pressure. Run hot water taps to see if the geyser functions properly. Look under vanities or sinks for tell tale signs of leaking pipes.

Drains

Inspect all drains for signs of blockages. Foul smells are clear indications that they might be blocked and you will have to contact a plumber to unblock the drains. Older sewerage systems may be damaged by tree roots, collapsed pipes or excess strain on existing infrastructure. These problems may be extremely difficult to fix.

Quality and age of fixtures and fittings

Poor quality and outdated fixtures and fittings, like carpets, kitchens and bathrooms, might end up costing you a small fortune to update or replace. Get a quote to replace these before committing to a purchase if you are not willing to live with them.

Paving and garden

Check if there is paving around the house and in the driveway and establish if you will need to install additional paving. Check the quality of the paving, making sure that it is not loose or broken.

Pest infestations

Telltale signs of rodent droppings or displaced soil may indicate the presence of rats or ants. If a house has wooden floors it may be worthwhile getting  a certificate indicating that there is no termite infestation or wood damage.


Electrical compliance certificate

Electrical faults or incorrectly installed electrical circuits can be very dangerous. It will be the responsibility of the seller to get an electrical certificate of compliance (COC) indicating that the electrical installations in the house meet the necessary standards and to pay for any upgrades that may be required. Note that the house cannot generally be transferred to you without this.

Electrical fence compliance certificate

The electric fence system compliance certificate is separate from an electrical compliance certificate and is therefore an additional requirement if the property has an electric fence system.

Since October 2012 any change in ownership triggers the obligation for the seller to also provide an electric fence compliance certificate. It will thus be necessary to arrange for an electric fence system certificate if an electric fence system exists on a the property.

Gas compliance certificate

If the house you want to purchase includes any built in gas fireplaces or braais, gas stoves or hot water systems and the like the seller of the property on which such gas appliance is installed, must obtain a certificate of conformity for these installations. Once again, the costs of any upgrades to the existing gas systems should be paid for my the seller.

For a free set of checklists to use when buying a home download our comprehensive set of Home Buyers Checklists.

Signing an Offer to Purchase

When you find that ideal home you will need to make an offer to the seller to purchase the property.

This is done in the form of an Offer to Purchase (OTP) document and if this is accepted and signed by the seller it becomes a Deed of Sale detailing the terms and conditions of your purchase.

The Offer to Purchase will cover as least the following key issues:

  • The details of the property. In the case of a freehold property this is the erf/stand number and the township in which the property is located. In the case of a sectional title unit it will also include details of the section, any common property and exclusive use areas.
  • A voetstoots clause. Basically this clause says that you buy the property as it is and that the seller cannot be held liable for any problems unless they are defects that the seller is aware of and are not visible. In short, it means you must do your homework and make sure you are really happy with the property before making an offer.
  • The offer price. This is the price that you are willing to pay for the property.
  • How you will fund the purchase. Will you require a 100% loan for the full purchase price or do you intend paying for a portion of the price out of your savings. An offer that has a cash component is seen to be stronger and so if you do have some savings you could use this to negotiate a better price.
  • An expiry date and time. You should only give the seller a limited time to accept the offer. This prevents the agent and seller using your offer to get a higher offer from other potential buyers. A day or two is normally all that you should give the seller.
  • When you can move into the property. This is called the occupation date. Generally this will also be the transfer date but it could be earlier or later depending on the agreement. If this occupation date does not coincide with the transfer date the party living in the house will pay the other party occupational rent – normally at 1% per month of the selling price of the property.
  • Appointment of the Conveyancer. Normally the seller will appoint the Conveyancing attorney who will be responsible for transferring ownership of the property from the seller to the buyer. It is not a legal requirement that only the seller can appoint the Conveyancer and is also negotiable if you believe you can get a better rate from a Conveyancer that you know.
  • The agents commision. This will indicate the level of the agent’s commision. The average in the market is about 6% but some agents will be willing to reduce this to make the deal work. It is critical to make sure that this will only be paid on transfer of the property, and not before that.
  • What happens on default. This will describe the penalties for each of the parties if they fail to meet any obligations after the agreement has been signed. It generally makes provision for the estate agent to get paid their fee if there is a default by the purchaser. This can often be paid out of any deposit that the purchaser pays so don’t make an offer and pay a deposit unless you are prepared to go through with the purchase.
  • Any special conditions. This could include provisions for the sale of an existing property if the buyer is relying on this sale to be able to purchase the property; agreement to become part of a homeowners or resident’s association, a list of specific items/fittings that will be included in the sale.

If you make an offer and it is accepted, then for the 99% of us that need to get a home loan to buy a property it is time to apply for that loan.

Step 5 – Getting your home loan

Once you have made an Offer To Purchase (OTP) in writing on a home and it is accepted by the seller you will need to secure the finance to purchase the property.

As the seller would like to conclude a successful transaction in good time there will always be a deadline by which time your finance must be approved. This deadline is usually a couple of weeks and if you miss it the agreement will lapse or worse still, if you do not apply, you may be in breach of the OTP and could be liable for penalties.

The three biggest factors that predict how likely you are to get a home loan are:

  • Your own credit profile;
  • Not buying for more than you can afford; and
  • How you apply

So, if you did your homework before you signed an OTP to check your credit profile and calculate your actual affordability you should have a reasonably high level of confidence that you will get the loan.

Now you need to decide how you go about applying for that loan.

Should I apply to all the banks?

Banks or home loan providers will assess three factors in deciding on whether to grant you a loan or not. These are: your affordability; the strength of our credit profile; and the value of the property and their general level of risk appetite. This last factor may include their exposure to the area in which you want to buy, their target for market share etc.

Banks all have different criteria to assess these factors and so it is highly recommended that you apply to a number of banks to get the best outcome – after all repaying a home loan is a long term commitment and moving your home loan to another bank later can be very expensive so you want to be sure that you get the best deal you can.

  • Data collected by FNB shows that on average for people that only apply to their own bank the approval rate is 45%.
  • If you use one of the top mortgage originators who applies to all the banks on your behalf the approval rate increases to 74%.

Advantages of getting prepared before you go house hunting

Experience with our clients shows that by properly evaluating their affordability and credit before going house hunting and by managing the application process to meet bank requirements clients can improve their chances of getting approved to 89.4%.

The role of a mortgage originator

As highlighted above you are considerably more likely to get an approval if you apply to a wide range of banks. Although you can do this on your own you can also get assistance from a mortgage originator. This will assist you in at least these ways:

  • Mortgage originator’s systems are designed to make it easier for you to apply to all the banks simultaneously with the least effort e.g. only completing one application form and not having to apply on each banks’ own set of application documents.
  • Mortgage originators are experienced at completing the application form in such a way as to present your information in the way that will maximise your chances of being successful
  • Mortgage originators will also inform you of all the supporting documentation that will be needed to accompany the bond application.  They may also encourage you to submit additional motivating documents if there are potential issues with your application (for example if you have paid up an account and it is still reflecting on your credit report you will be required to submit paid up letters from the service provider).

Make sure you get the most options

Some bond originators only submit applications to one financial institution as they receive better commission from that particular finance provider. If your consultant does not apply at more than one bank on your behalf it may be a sign that they do not have your best interest at heart.

The home loan application process

You will need the following documents for submitting your bank application:

  • A clear copy of each purchaser’s ID book – if you are in possession of the new ID card then a clear copy of the front and back must be provided.
  • Proof of employment in the form of the last three months payslips.  These payslips must preferably be stamped and dated by your company or manager.  If you receive any additional amounts on your payslip such as commission or overtime over and above your basic salary you will need to provide six months payslips in order for the banks to recognise the additional income.
  • Your latest 3 or 6 months stamped bank statements. These must not be older than 10 days from the date of the bank application submission.  It’s really important to ensure these bank statements reflect your last three months salary payments for the corresponding payslips above otherwise banks will not accept them and you will have to go back to the bank to get stamps again.

In addition you will also need to provide:

  • A properly completed home loan application form;
  • A signed offer to purchase agreement; and
  • A building contract with an approved developer or builder together with all the related building contract documentation such as building plans, specification etc. if you are purchasing in a new development.

Once you have submitted your application it will take between 2 and 14 days for you to get a final response indicating whether you have been approved or not.

Choosing the best deal

The main things that you should consider when deciding which bank’s offer to accept are:

  • Did the bank grant you a loan for the full amount? If a bank grants you an 80% loan (e.g. R 800 000 against a R 1 million application) it may mean that you cannot complete your purchase if you do not have the additional R 200 000 as a deposit. As a result this is often the most important consideration.
  • The interest rate on the loan. A small difference in interest rates can make a very big difference in the overall cost of buying a home. For example, on a R 1 million loan, a 1% difference in interest rate will make a difference of R 160 000 in the cost of repaying the loan over 20 years.
  • Any special offers or conditions. Sometimes banks will offer preferential rates if you are able to pay via a salary deduction or if you move your accounts to them.
  • Need for life cover. Some banks may not require you to take out life cover. If you do not have any dependents this gives you the option of saving this money on a monthly basis if you so choose.
  • The cost of homeowners cover and life cover. You will need to take out homeowners cover to protect yourself and the bank against events that could cause damage to your home. In most instances you will also have to take out life cover so that the bank can be repaid their loan in the event that you die (or are disabled). Although the pricing of these insurance products is an important consideration, you can always replace them later with a different insurer and so this should not be your main consideration when choosing a loan provider.

Once an offer is accepted by you the bank will issue an instruction to the attorneys to prepare the legal documents and present it to you for signature. They will then submit these to the Deeds Office for registration.

Step 6 – Navigating the legal process

Once you have an accepted offer to purchase and/or building contract and have been approved for a home loan the process of registering the property will be handed over to attorneys who are called conveyancers.

The standard process takes, on average, 2 months. If transfer is subject to construction of the property taking place then this can obviously take much longer depending on how long it takes to complete construction.

Other factors that could slow down the process include: failure for council to provide clearance figures and for the buyer to get clearance certificates and complications if you are buying from a deceased estate.

In most cases there are two parts to the legal process:

Transferring the property into the name of the buyer

The party appointed to manage this process is the Transferring Conveyancer. Normally the Transferring Conveyancer is chosen by the Seller although the Purchaser pays the Transferring Conveyancer’s fees.

Reducing legal transfer costs

As a rule of thumb, the seller is the party who nominates the transferring attorney.

Regardless of who appoints the conveyancer, the conveyancer owes a duty of care to both parties and must represent both parties fairly, unless a dispute arises, in which case the transferring attorney will be allowed to act on behalf of the party who appointed him.

If you have a relationship with a reputable conveyancer and they are willing to charge you a rate lower than the fee prescribed by the Law Society you can ask that you appoint the transferring conveyancer.

The transferring attorney will give effect to the sale on the terms and conditions in the offer to purchase.

You will need to provide acceptable FICA documentation to the attorney. This includes your ID document(s) and proof of address and, if applicable, your marriage certificate, antenuptial contract or divorce decree.

If you have agreed to pay any deposit then the deposit will need to be paid to the transferring attorney by the required date as agreed to in the offer to purchase. You will also have to pay any transfer duty amounts to the transferring attorney who will pay this to SARS.

Before transfer you will also need to pay the transferring attorney fees.

The seller will need to provide FICA and current bond account details (if applicable) to the transferring attorney.

During the transfer process the seller is expected to keep paying bond installments on the current loan (in any), to pay rates and taxes and assist in getting a clearance certificate from council, to pay all levies/homeowners association fee to date of transfer and get the respective clearances for these, to continue to maintain the property, to get any compliance certificates that are required.

The transferring attorney also normally deals with the cancellation of any existing bond over the property. The previous bond holder/lender will only consent to this if it is clear that all outstanding amounts owed will be settled on transfer. If there is a shortfall, the seller will have to provide assurance that this will also be settled by reducing the balance or providing another acceptable guarantee that the current bond holder will be settled.

A conveyancer will prepare transferring documentation. This is the documentation that needs to be lodged at the Deeds Office. You will sign the transfer documents and give the conveyancer a power of attorney to transfer the property into your name.

The transferring attorney will also liaise with the bond registration attorney to arrange simultaneous lodgement of the transfer together with the bond registration attorneys.

After transfer the transferring attorney will settle all accounts, pay agents commission, repay any interest earned on any deposit amounts and confirm transfer with the respective municipality.

Registering a new bond over the property

Once you have accepted a bank loan offer the bank will appoint bond attorneys who will be responsible for registering a bond over the property as security for the bank.

The bond attorney will also liaise with the transfer attorney to ensure that guarantees are issued to the transferring attorney to cover any payments due for cancelling any existing bond and for payment of the purchase price of the property out of the home loan.

In the case of the transfer of an existing property or a new development property that has already been completed, guarantees will be for the full purchase price. In the case where you have bought a building package, guarantees will essentially be for transfer price of the stand and the builder will make subsequent draws against the loan in line with progress in completing the construction of the house.

The bond attorney prepares the bond documentation. The buyer signs the bond documents and pays the bond initiation fee and bond attorney costs.

You will also need to provide acceptable FICA documentation to the bond attorney. This includes your ID document(s) and proof of address and, if applicable, your marriage certificate, antenuptial contract or divorce decree.

The bond attorney will also check that all conditions for the grant of  home loan are met before issuing the guarantees. This could include making sure that you provide the required life and homeowners insurance.

Once all these conditions have been met, the bond attorney prepares and issues the necessary guarantees, forwards them to the transferring attorney and prepares the bond documents for lodging in the deeds office.

After all the documentation has been signed and the costs paid, the transfer and bond documents are are lodged in the appropriate Deeds Office.

These documents are examined by the Deeds Office personal and if all is in order the property transfer is registered together with any bond over the property.

On the day of registration, the bank pays out the loan in accordance with the guarantees issued.

Required payments by the buyer

Other than signing any documents when requested to do so and providing all the required FICA documentation, the buyer needs to make the following payments:

  • Pay any required deposit by the required date in terms of the OTP
  • Pay the transfer duty amount to the transferring attorney when requested to do so
  • Pay the transfer legal costs to the transferring attorney
  • Pay the bond registration costs to the bond attorney
  • Pay any bank initiation fees to the bond attorney

You can get an estimate of the upfront costs that you will need to pay as a buyer by using our Transfer and Bond Costs Calculator.

    What can go wrong?

    Here are some of the things that can go wrong:

    • Transfer takes longer than you anticipated. This can mean that you need to move if you cannot stay at your current address. You may be able to negotiate occupation.
    • The buyer is not able to pay all the costs. If the buyer defaults in meeting any of the obligations above, the transaction can be cancelled. As the buyer is in default the buyer may be liable for damages and if any deposit had already been paid this could be forfeit.
    • The bank withdraws their approval/guarantee. Bank guarantees are not unconditional and banks will often re-evaluate a transaction if the transfer takes longer than 3 months. If the buyers credit profile or affordability have deteriorated in this time, there is a risk that the bank may cancel the deal (and this could also result in the loss of your deposit). So – after purchasing a property – do not take out any additional credit until the transfer has been completed – not even to buy a new lounge suite for your new home!

    Step 7 – Moving in and waving goodbye to your landlord

    Move in and invite your friends for tea and cake.

    Wait – not so fast! Did you get what you were promised?

    Always arrange for a handover and inspection with the estate agent/seller or the developer’s representative. In the case of an existing house, see that all the items specified, such as pool covers, blinds, etc. are present. Also check that you have all the keys and remotes, especially for external doors, change the alarm passwords and maybe even the front door lock.

    If it is a newly built house ensure you inspect every room as well as the outside and identify any defects. According to the NHBRC you have 90 days to report any defects to the developer and they have to come and fix it, even if they have to come more than once. This is for small defects, but on the roof you will have a 1 year warranty and 5 years on the superstructure.

    Your responsibilities as a property owner

    And owning a home is not all tea and cake. Homeownership comes with some key responsibilities:

    • As a property owner you will be responsible for rates and taxes (as well as utilities such as water and lights). Once you have taken transfer of the property you need to open municipal accounts in your name. You can expect to have to pay a deposit for each of your electricity, water and gas accounts – this can add up to a couple of thousand rand.
    • Maintenance of your home. Being a proud homeowner involves fixing and looking after your property:
      • Paint inside and out every 5-7 years.
      • Attend to leaks and cracks immediately before they get worse and cost you even more money.
      • Add and maintain paving and/or gates, fences or surrounding walls.
      • See that tiling and carpets are well looked after.
      • Ensure that electrical plugs and appliances are kept safe and work.
      • Check on waterproofing every few years.
    • Insurance. You never know when something will go wrong. Natural disasters such as storms or fire can cause extensive and very costly losses. Always keep your homeowners insurance up to date – even if you have fully repaid your home loan. And make sure you know all the events that are covered by your insurance – for example, many people do not realise that they are covered if their geyser fails!

    Managing your home loan

    Without a bank loan it is impossible for most of us to buy property. So now you have that BIG ASSET – a home, but you also have a BIG LIABILITY – repaying your loan!

    Remember that if you do not keep up with your payments the bank can foreclose on your mortgage by evicting you and selling the property to repay your loan. And if the bank does not recover enough to repay the loan you will still be liable for whatever remains outstanding.

    So, if you can’t pay temporarily, speak to your bank. Life happens to all of us and sometimes things go wrong. You may face a family health crisis or you may have been retrenched and need to find a new job. All of these can affect your ability to repay your home loan.

    If you suspect that you are not going to be able to pay your monthly installments for a short period then contact your bank and negotiate a plan to take a payment holiday or reschedule your loan payments to take the pressure off. The costs of foreclosure for banks are very high and so it is often in the banks best interest to try and accommodate you.

    If you will no longer be able to afford payments, be proactive and sell the property sooner rather than later.

    Paying a bit extra on your loan each month can save you a fortune! For example: if you pay an installment of  R 10 650 per month on a R 1 000 000 bond instead of the required R 9 650 you would save R 358 000 and would repay the loan in 15 years instead of 20 years. And if you paid an extra R 2 000, you would save R 552 000 and would finish paying for your home in 12.6 years!

    You can calculate what these savings could be for you by using our Bond Repayment Calculator.

    Building Equity

    The equity in your home is the value that you would be able to get at any point if you sold your home and repaid the bank what you owe on your home loan. 

    For example: if you still owed R 550 000 on your home loan and could sell your home for R 1 000 000, you would have R 450 000 in equity in your home.

    You can use the equity in your home to pay for a bigger home if you decide to upgrade; to pay for your children’s education; to provide savings if you want to start your own business; or even to pay for that special overseas holiday.

    So, equity in your home is a really good thing and the more of it you have the better!

    Here are three ways that you can increase the equity in your home:

    • Paying off your home loan. The faster you pay off your home loan, the faster you will build up equity in your property.
    • Upgrading or adding on to your home. Selectively upgrading or improving your home can be a very good investment as long as you do not overcapitalise in the area where the house is located. Modernising your home, adding an income producing flatlet or that extra reception room can pay off when you need to sell if these are in demand.
    • Working together as a community. If the area in which you live is sought after by buyers, prices of homes in the area will increase faster than surrounding areas. To really make an area desirable the community will have to work together to make sure the environment is attractive, neat and as free from crime as possible. There are numerous examples of suburbs where communities have achieved amazing property price growth by working together to clean graffiti, ensure bars are closed on time and reduce crime through working with local police forums.